Hartford Business Journal

22 Hartford Business Journal • October 8, 2018 • www.HartfordBusiness.com to learn more visit business.uconn.edu SPONSORED CONTENT By Timothy Folta Professor Tim Folta holds the Thomas John and Bette Wolff Family Chair in Strategic Entrepreneurship at the UConn School of Business. He also serves as the faculty director of the Connecticut Center for Entrepreneurship & Innovation. Entrepreneurship Doesn't Always Deserve the 'Risky Business' Reputation That It Is Assigned Most of us are aware of the state- wide efforts underway to jumpstart the Connecticut economy by inspir- ing entrepreneurship. As we consider these efforts, it is worth contemplat- ing how it is that the entrepreneur does what she does. What particularly interests me is that entrepreneurship is often associat- ed with the concept of risk. I have heard many policy makers, and even university presidents, advocate in the same sentence that we need more entrepreneurs… we need more risk-takers. To be clear, entrepreneurial ventures, particularly those making the greatest impact, are often very risky. Indeed, high rates of venture failure are evidence of risk. However, I suggest that the link between entrepreneur- ship and risk is problematic for two reasons. First, it turns out to be wrong. Research undoubtedly shows that the entrepreneur is not any more risk-seeking than the typical man- ager. Let us be clear about what risk-seeking behavior represents. Consider you have two alternatives – (a) receive $1 million, and (b) a coin toss with a chance for either $0 or $2 million. The risk-seeker would prefer alternative (b) every time. None of the entrepreneurs I interview have described themselves as gam- blers. Rather, they prefer to character- ize themselves as clever risk manag- ers, seeking to mitigate risk. This is consistent with the emphasis by ven- ture capitalists and angel investors to evaluate entrepreneurs on whether they perceive and attempt to mitigate the relevant risks (e.g., management risk, product risk, business model risk, financial risk, market risk). It is also consistent with the recent wave of enthusiasm within fund- ing agencies, such as the National Science Foundation and the National Institute of Health, encouraging entrepreneurial experimentation to reduce market and business model risk. Healthcare entrepreneurs seek to mitigate product risk through patent searches to assure freedom to oper- ate and product competitive advan- tages tied to technology. Many other entrepreneurs manage management risk through the hiring of key em- ployees or building potent advisory boards. So, while entrepreneurs are not afraid of risk, they do not seek it out. Rather, they try to manage it through thoughtful experiments and leverag- ing resources. A second reason a link between entrepreneurship and risk might be problematic is that it implies some- thing is "at risk" if the venture fails. While entrepreneurs may lose their own financial resources, it is often the case that venture investors have the most at risk. It might be argued that an individual's time or employment opportunities are at risk. But, in a study of over 40,000 Swedish men, our research found that over half started a venture while retaining their current job, and switched to entrepreneurship only when the venture growth accelerated. Perhaps venture failure might harm a person's professional reputation, but in many cultures entrepreneurial failure is considered a badge of cour- age. So, it should not be assumed resources are at risk. Of course, it is often the case that en- trepreneurs do not perceive the risks underlying their venture opportuni- ties. In fact, one survey discovered that entrepreneurs drastically over- estimate their likelihood of success, with over 95 percent believing their venture would succeed. In my view, a key reason for entre- preneurial education is to temper over-optimism through objective anal- ysis and experimentation that inspires creative revisions to business models. Such programs are a key element to the entrepreneurial infrastructure and accentuate efforts to accelerate effective entrepreneurship. Thought Leaders in Business Today is a series produced by the UConn School of Business featuring faculty research and expertise on today's business challenges. For additional information on today's subject, or if you have a topic you'd like us to address, please contact Michael J. Deotte at michael.deotte@uconn.edu or 860.486.4478. "...while entrepreneurs are not afraid of risk, they do not seek it out. Rather, they try to manage it through thoughtful experiments and leveraging resources."

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